Assume that there exists uncertainty about the impact of monetary policy on the macroeconomy. Given this information, it would be most appropriate for the central bank to increase money growth:
A) by less than the increase that will yield the desired response.
B) only after it is certain that the economy has entered a recession.
C) by more than the increase that will yield the desired response.
D) by an amount equal to the increase that will yield the desired response.
E) at the midpoint of a recession.

Question

Quizplus · Accepted Answer

Since there is uncertainty about the impact of monetary policy on the macroeconomy, it is appropriate to err on the side of caution and increase money growth by less than the amount that will yield the desired response. This approach provides some insurance against the possibility that the desired response is not achieved, and reduces the risk of unintended consequences.

Assume That There Exists Uncertainty About the Impact of Monetary